Yen Year-Low Dilemma: The Japanese yen touched a fresh one-year low against the dollar, amplifying concerns as traders anxiously await U.S. inflation data this week. Eyes are fixed on the U.S. Consumer Price Index (CPI) figures scheduled for Tuesday, following the recent Fed policy meeting that hinted at a less hawkish stance. While Fed Chair Jerome Powell suggested the battle against inflation may persist, market sentiment hinges on the upcoming CPI data and a slate of Fed speakers expected to echo Powell’s cautious tone.
Matt Simpson, Senior Market Analyst at City Index, noted that even with a potential softer CPI print, the Fed is likely to resist rate cut expectations, particularly with inflation remaining above the target. The dollar index, measuring the dollar against a basket of currencies, remained mostly flat at 105.80, exhibiting muted reaction to Moody’s negative outlook for the U.S. credit rating.
Despite this, the yen faced continued pressure from rising U.S. Treasury yields and dollar strength, touching a one-year low at 151.78 against the dollar.
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Analyst Tony Sycamore of IG suggested that robust U.S. economic data releases could push the dollar/yen pair further, while a supportive risk backdrop might attract carry buyers.
In Japan, wholesale inflation slowed below 1%, indicating a fading trend in cost pressures that had been driving up prices. This comes after the Japanese central bank upgraded its inflation forecasts in October. However, the data provided little support to the yen.
Sterling held firm at $1.2231 against the dollar, with upcoming UK average weekly earnings and CPI readings awaited. The economic backdrop remains uncertain, as recent GDP data indicated a stagnant economy. As global markets watch the unfolding dynamics, the spotlight remains on the interplay between central bank policies, economic indicators, and currency movements.
Our Reader’s Queries
Why is the yen so weak right now?
The yen is currently experiencing a significant decline, largely due to Japan’s central bank maintaining rock-bottom interest rates while other central banks, such as the Federal Reserve, have been increasing rates. Despite inflation rates in Japan and the US being similar, the downward trend of the yen continues.
Why does Japan keep yen so low?
The yen has experienced a 30% depreciation against the US dollar, which can be attributed in part to the Bank of Japan’s monetary easing policy and yield curve control. This policy, implemented in 2016, sets short-term interest rates at negative 0.1% and aims for 0% for 10-year long-term interest rates.
What was yen three decade low?
In September of last year, Japanese authorities took action to bolster the yen in the currency market. This was the first time they had done so since 1998. The move came after the Bank of Japan decided to maintain its ultra-loose monetary policy, which caused the yen to drop to as low as 145 per dollar. The authorities intervened again in October 2022 when the yen hit a 32-year low of 151.94.
Will yen get stronger in 2024?
According to Keiko Kondo, the head of Asia multi-asset investments at Schroders, the yen is expected to strengthen against the euro in the future. However, Kondo predicts that this appreciation will be mild and gradual, rather than sudden and forceful. In 2024, she anticipates a soft and gentle rise in the value of the yen.